How to Get a Better Perspective on Affordability
Headlines spotlight the fact that buying a home is less affordable today than it was at any other time in more than a decade. Those headlines are accurate. Home prices have risen now for 3 straight years.
Understandably, buying a home is more expensive now than immediately following one of the worst housing crashes in American history. Over the past decade, the market was flooded with distressed properties (foreclosures and short sales) selling at 10-50% discounts. There were so many that this lowered the prices of non-distressed homes in the same neighborhoods. As a result, mortgage rates were kept low to help the economy.
Prices have since recovered. Mortgage rates have increased as the economy has gained strength. This has impacted housing affordability. However, in the last 12 months, mortgage rates have returned to historic lows.
Even though home prices are appreciating at a slower rate, low interest rates are keeping home affordability at historic levels.